People do seem to misinterpret MPG ratings. A study published in Science in 2008 [1] found that participants consistently overvalued vehicles with high MPG ratings. They assigned values linear in MPG rather than linear in its inverse.
The study's authors told participants to "assume you drive 10,000 miles per year for work, and this total amount cannot be changed." The participants were then asked to come up with values for vehicles of varying fuel-efficiencies. That is just the sort of optimization problem people face when choosing which car to buy, and apparently a fuel-efficiency metric that puts the amount of fuel in the numerator makes the problem easier to solve because expenditure is proportional to the amount of fuel burned, at least when distance driven is taken as given.
But in reading many of the words expended on this topic over the last couple of years, my lasting impression is that this a lot of hullabaloo about the wrong problem. It's the lack of attention paid to the "miles" part of the equation that most needs fixing. If the goal is to reduce carbon emissions (or any of the other negative externalities of driving), then taking distance driven as fixed frames the problem in a way that obscures the real solution: we should be encouraging people to drive less.
Yes, reordering your daily life to drive fewer miles is more disruptive than simply buying a car that goes farther on a gallon of gas. And, granted, once you've chosen your style of life, minimizing the amount of gas you burn as you go about your daily routine is the thing to do (even if your optimization problem is a purely financial one). All the same, it's ludicrous to ignore the basic inefficiency of the suburban lifestyle that predominates in America while we wait for automotive engineers to come up with clever solutions to pricey gas and to carbon emissions that are twice as high per capita as in similarly wealthy countries.
Elon Musk isn't going to save us all by himself. Surely living closer to where you work, using mass transit, cycling, and walking more must be part of the solution as well. ... So maybe houses and apartments should come with a "miles per day" rating suggesting how far you'd travel getting to and from shops, restaurants, entertainment venues, and your place of work every day you live there. ...
0. https://news.ycombinator.com/item?id=4020885
1. http://www.sciencemag.org/content/320/5883/1593.summary (paywalled); http://nsmn1.uh.edu/dgraur/niv/theMPGIllusion.pdf [PDF]